huge industrial combinations offering a great variety of attractive investments and disbursing generous dividends from their large profits, the temptation to overtrading was irresistible. The eagerness for capital investment wiped out the marginal safety of savings. A warning of trouble came in the spring of 1907, when the banks began to contract their loans, and in order to meet the demands of their depositors had to throw securities upon a market that was already sated with buying. A sharp decline in most of the "gilt-edge" stocks followed in the summer. General Electric, for example, dropped from $162 to $90 a share. In October the Knickerbocker Trust Company failed, followed by three other trust companies, six state banks, and one national bank in New York City. The panic spread from the financial center to the rest of the country. The New York banks not being able to meet the demands of their creditors for the shipment of currency, specie payments were generally suspended. Currency went to a high premium, as money was hoarded by private holders. Depositors were asked to draw from the banks only the sums of cash absolutely necessary. The solvent banks were tided over by loans from the clearing-houses on the collateral of the high-class securities which they could not immediately put on the market except at a ruinous loss. It was not until the beginning of February, 1908, that confidence was restored, and the recurrent poison of reckless and fraudulent trading was again purged out of our financial system. The immediate result of the panic was the passage of the Aldrich-Vreeland Act of 1908; this provided for an emergency currency of several hundred million dollars which was to be lent to the banks in times of stress by the Treasury Department on the collateral of approved securities, and was to be retired by progressive taxation as conditions improved. A National Monetary Commission, appointed at the same time, with Senator Aldrich as chairman, spent four years in a thorough investigation of the banking and currency systems of the world. It was largely as a result of the report of this commission that the present Federal Reserve System was adopted in President Wilson's administration.

The tendency of human nature is to find somebody to blame for one's misfortune. Not one man in ten thousand could understand the complicated and deeply rooted causes of the panic of 1907. If they could have understood them, it would have been little comfort to know that they were due to inveterate evils in which they themselves were probably implicated. A scapegoat was at hand. The President was evidently responsible. Had he not been unsettling business by his attacks on the railroads and the industrial corporations? Had he not precipitated the panic by bringing suit against the Standard Oil Company in November, 1906, and announcing his intention of breaking up the great Union-Central-Southern Pacific merger of the Harriman lines?1 The newspapers controlled by "predatory wealth" published editorials on "the Roosevelt Panic" and "Theodore the Meddler," until many even of the President's supporters thought that it would be advisable for him to call a halt in the enforcement of the anti-trust laws, at least "for a year or two." What Roosevelt himself thought of such advice may be seen in the replies which he sent to his correspondents: "I will not deviate one hand's breadth from the course that I have marked out," he wrote to Colonel Henry Lee Higginson of Boston; "the one hope for the honest railroad man, the honest investor, is in the extension and perfection of the system inaugurated by that [Hepburn] law." "When hard times come," he wrote to Hamlin Garland, "it is inevitable that the President under whom they come should be blamed. There were foolish people who supported me because we had heavy crops, and there are now foolish people who oppose me because extravagant speculation, complicated here and there with dishonesty, has produced the inevitable reaction. . . . It may produce a temporary setback for my policies in either one of two ways: that is, in securing the election as my successor of a reactionary or of some good man who will be the tool of the reactionaries; or else through having the pendulum swing the other

1 It was after this announcement and just at the beginning of the panic of 1907 (April 2) that the Harriman letter reflecting on the conduct of Roosevelt in the campaign of 1904 was given to the public (see page 416, note).

way with violence, so that my successor, as a wild radical, will bring utter discredit on the reforms. . . . But I am perfectly certain that in the end the nation will have to come to my policies, simply because the Republic cannot endure unless the government's actions are founded on these policies, for they represent nothing whatever but aggressive honesty and fair treatment for all."1

As a matter of fact, far from causing the panic, the President did everything in his power "to restore confidence and give the banks a chance to get currency into circulation." The Secretary of the Treasury, Mr. Cortelyou, visited the bankers in New York to assure them of the government's coöperation. When Judge Gary and H. C. Frick sought an interview at the White House, President Roosevelt received them cordially and agreed to their proposition that the United States Steel Corporation be allowed to purchase the securities of the Tennessee Coal and Iron Company in order to prevent a large business firm in New York, which held a majority of those almost worthless securities, from a bankruptcy which would have greatly exaggerated the panic. But he acted only after he had become convinced, with the Attorney-General, that Gary and Frick were telling him the truth when they represented the proposed transfer as a disinterested act from the point of view of the Steel Corporation. The Tennessee company was not a serious competitor. It was making rails at a constant loss. It never had earned dividends. And it would have taken an outlay of at least $25,000,000 to put it on a paying basis. The acquisition of the company's properties added less than 2 per cent to the output of steel manufactures controlled by the great corporation, which, for the rest, manufactured but 60 per cent of the total steel production of the country, as against over 66 per cent at the time of the organiza

1 The letters from which these two quotations are taken as samples may be found in J. B. Bishop's "Theodore Roosevelt and his Time," Vol. II, pp. 36-53. 2 He wrote to Attorney-General Bonaparte on January 2, 1908, "I do not for a moment believe that our acts have brought on the business distress, . . . but if it were true that to cut out the rottenness from the body politic meant a momentary shock to an unhealthy seeming prosperity, I should not for a moment hesitate to put the knife to the cancer" ("Autobiography," p. 500).

tion of the corporation in 1901. As there was therefore no advantage to the corporation and no tendency toward monopoly in the purchase, the President and his advisers saw no reason why they should oppose it. Mr. Taft was at the time a member of the cabinet, and, according to the President's testimony, he interposed no objection to the transaction. A few years later, when Mr. Taft was president, a suit was brought against the United States Steel Corporation, the Tennessee Coal and Iron deal being made one of the chief points of the indictment. Mr. Roosevelt submitted a detailed defense of his action,1 and the Federal district court of New Jersey upheld his course in a decision which was confirmed in 1920 by the Supreme Court of the United States.

In November, 1907, there were uncovered what President Roosevelt called "probably the most colossal frauds ever perpetrated" in the customs service. A certain Richard Parr, who was employed as a surveyor at the appraisers' stores in New York, confided to his old schoolmate William Loeb, Jr., the President's private secretary, his suspicions that the sugar companies were cheating the government by reporting short weight in their importations. Loeb told the President, who finally got Parr appointed as special investigator in the department. After several months of clever detective work at the Brooklyn docks, Parr discovered a steel spring in the scales of the Havemeyer and Elder sugar company, which reduced the indicated weight of the sugar far below the actual weight. Proceedings against the sugar trust for the recovery of duties were begun under the charge of H. L. Stimson, district attorney of the southern district of New York. The jury, after less than an hour's deliberation, brought in a verdict of guilty (March 4, 1909). The American Sugar Refining Company paid over to the government $2,000,000; while other companies, confessing evasion by crooked methods, paid $1,500,000 more. Henry O. Havemeyer, the president of the chief offending company, died just before the prosecution began. The secretary and treasurer, Charles Heike, was convicted of felony, but was saved from the 1 The defense is printed in Appendix A to his "Autobiography," pp. 606–620.

penitentiary by President Taft's commutation of his sentence. The poorer men went to jail-as usual.

A less successful attempt to bring the law-defying corporations to book was made in the summer of 1907, when judgment was rendered in the Federal district court of Chicago against the Standard Oil Company for receiving rebates from the Chicago and Alton Railroad. The huge fine of $29,240,000 was imposed on the company by Judge Kenesaw M. Landis on 1462 specific counts. It is said that the counsel for the defendant rose after the verdict and remarked that not a cent of the fine would be paid. If the story is true, he was a good prophet. The clever lawyers of the company found flaws in the construction of the case and dubious interpretations of the technicalities of the statute sufficient to secure an annulment of the verdict on appeal to the circuit court. The case was legally dismissed, but the public was hardly convinced of the innocence of the defendant. Meanwhile the suit for the dissolution of the Standard Oil Company, which had been brought by President Roosevelt, under the Sherman Anti-Trust Act, was on its tedious way through the courts. The indictment, filling nearly sixty printed pages in the record, included charges of rebating and discrimination, restraint and monopoly of trade, unfair practices against competing pipe lines, compulsory contracts with competitors, local price-cutting, espionage, the operation of bogus "competing" companies, the distributing of territory to eliminate competition in sales, and "enormous and unreasonable profits" as the result of monopoly. The bill asked that "the Standard Oil Company of New Jersey be enjoined and restrained from in any manner continuing to exert control over the subsidiary corporations by means of ownership of their stock or otherwise." On May 15, 1911, the Supreme Court handed down the decision ordering the dissolution of the company and the return to their holders of the securities of the various companies that had entered the combination. "The object of the prosecution of the trusts," said President Taft in a speech at Detroit in September, "was to secure a degree of disintegration by which competition between its parts should be restored and preserved." If the